Suppose the Aggregate Production Function in ADANAC Is Y_t =

question 44

Essay

Suppose the aggregate production function in ADANAC is Y_t = A K^1/3 L ^2/3. Assume A is constant and equal to 2.
a. What are the returns to scale in this production function?
b. Are there decreasing returns to labour and capital?
c. Write the aggregate production function in per worker terms.
d. Assume that saving rate is equal to 0.32, population growth 0.03, and the depreciation rate 0.05. What is the steady state level of output per worker?
e. If the saving rate decreases to 0.20, what would happen to the steady state level of output per worker?

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